Applied Digital (APLD) has been in focus after reporting quarterly revenue growth of 98.2% year on year and securing US$2.15b in debt financing to expand its hyperscale data center capacity in the Dakotas.

Despite the recent volatility around earnings, debt financing and sector sentiment, Applied Digital’s 1-year total shareholder return of 292.47% and very large 5-year total shareholder return, versus a negative 12.88% year to date share price return, suggest momentum has cooled in the short term while longer term holders have still seen very strong gains.

If you are looking beyond a single name in AI infrastructure, it could be a good time to scan the wider market and see which other AI data center players are catching attention through the 36 AI infrastructure stocks.

With revenue up 98.2% year on year and US$2.15b in fresh debt funding its AI data center build out, has Applied Digital’s recent share price pullback opened a value gap, or is the market already pricing in future growth?

Most Popular Narrative: 46% Undervalued

The most followed narrative sees Applied Digital’s fair value at about $45.27 per share, compared with the last close at $24.49, and anchors that gap in contracted AI data center cash flows and long lease terms.

The company has recently secured long-term (15-year) leasing agreements with CoreWeave, a major AI hyperscaler, for its purpose-built AI/HPC data center campus, Polaris Forge 1, representing a total of $7 billion in contracted revenue and a multi-year, recurring, and predictable revenue stream that directly supports future revenue growth and cash flow stability.

Want to see how long dated leases, high growth assumptions and a rich earnings multiple are stitched together into that valuation gap? The key drivers might surprise you.

Result: Fair Value of $45.27 (UNDERVALUED)

However, heavy use of debt and reliance on a few large hyperscaler and crypto customers mean project delays or contract changes could quickly challenge that narrative of being 46% undervalued.

Another View: Rich Sales Multiple Raises A Different Question

The narrative fair value of $45.27 per share suggests Applied Digital is undervalued, yet the current P/S ratio of 25.9x is far above the estimated fair ratio of 10x, the US IT industry at 1.7x and peers at 6.4x. That gap points to valuation risk if expectations reset, so which signal do you weigh more heavily?

Next Steps

With such mixed signals around value and expectations, it helps to move fast, look through the underlying data, and form your own view by weighing the 1 key reward and 3 important warning signs.

Looking for more investment ideas?

If Applied Digital has sharpened your focus on AI infrastructure, do not stop here. Widen your opportunity set and keep your watchlist working harder for you.

• Target potential mispricings by scanning companies that screen as 63 high quality undervalued stocks before other investors catch on.
• Strengthen your income stream by checking out companies in the 12 dividend fortresses that might complement your existing holdings.
• Keep risk in check by reviewing stocks in the 65 resilient stocks with low risk scores so you are not relying on a single high volatility theme.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.